Current approaches
France and Germany have introduced large financial rescue packages to seek to lessen the impact of the COVID-19 pandemic on their economies. Bruno Le Maire, the French Finance Minister, has announced an aid package to help businesses and employees worth over 300 billion Euros. The German Federal and state governments have announced measures totalling over 800 billion Euros for companies and households.
Policies recently announced in both countries include tax breaks and loans to support firms affected by the crisis as well as the expansion of short-time working/partial employment schemes.
The French scheme (chômage partiel) provides companies with the means to sustain either a reduction of the employees’ working time below the legal weekly working time or temporary closure of all or part of the establishment. Companies receiving the allowance will pay employees 70% of their previous gross remuneration (100% for those on the minimum wage). The firm will be fully reimbursed by the state for salaries up to 6,927 Euros gross per month (4.5 times the minimum wage).
The German scheme, known as Kurzarbeit, enables employers whose work is negatively impacted by the Coronavirus (for example, if they must reduce their working hours to respond to supply chain issues or close their premises in line with governmental safeguards) to request short-time working benefits for their employees. The allowance, which operates through existing social insurance channels, is calculated based on the net loss of earnings. Legislators are seeking to introduce special short-term rules for accessing the scheme but currently, employees generally receive 60% of their flat-rate net wage. This rises to 67% for households with at least one child. The maximum statutory subscription period is 12 months.
The experience of the 2008 Financial Crisis
France and Germany also offered short-time working during the 2008-2009 Financial Crisis. Approaches in both countries, whilst similar, produced varying results.
The French scheme is one of the oldest in Europe, dating from 1919. However, it was considered less strong and reactive during the crisis than schemes in other countries. Between 2007 and 2009, less than 0.85% of the working population in France benefited from the scheme compared to over 3% in Italy and Germany. The Institute for the Study of Labor argues that “Without the extensive use of short-time work, unemployment would have risen by approximately twice as much as it actually did” during the financial crisis. It contends that using the allowance “certainly contributed to the mild response of the German labour market to the crisis”. Eurofound estimates short-time working arrangements in Germany accounted for about 300,000 to 350,000 saved jobs during the crisis.
Learning points
The recent expansion of short-time working schemes in response to the COVID-19 pandemic reignites debate over how best to implement such schemes and the economic conditions required for them to be successful.
Ease of access:
Several reports suggest firms in France preferred other sources of support to the Partial Activity scheme because of the complexity of the scheme. The value of the allowance differed according to the size of the firm and the mechanism opted for (conventional or extended short-time working). As such, a report for the French Government pointed out difficulties employers faced understanding the amount to be paid to them.
By contrast, the German system is easier for employers to follow, as it is consistent with conventional unemployment benefit rules. This emphasises the importance of ensuring the direct benefits of allowances to firms are communicated clearly. It is important that in 2009, France revised its scheme increasing the duration of support to up to one year, reducing the number of employers that were required to pay towards the scheme, increasing the hourly value of the allowance and increasing support for training for employees on the scheme.
Economic context:
Analysis suggests a key reason for the greater recourse to short-time working in Germany was the structure of industrial employment and the sectors affected by the crisis. External demand fell more sharply in the crisis in Germany than France. Pre-crisis corporate finances were also stronger in Germany than France and skilled labour was in shorter supply, increasing the incentive for employers to want to retain employees through short-time working for future projects.
Training:
Neither the German nor French schemes operating in 2008-2009 placed much emphasis on using the time employees received the benefit to promote engagement among workers in training. This was perhaps because of the difficulty of coordinating unpredictable periods of short-time working with training activities. Nonetheless, reforms were introduced in Germany (in 2009) and France (in 2012) to attempt to overcome these difficulties. Government guidance in France now emphasises that whilst receiving the Partial Activity Allowance, employees have the right to access continuing professional/occupational training, support towards acquiring new qualification, conversion or block release training. In relation to the UK, this highlights the opportunity available to use the time when employees are furloughed to promote engagement with online training courses. Given the UK’s poor level of basic digital skills, expanding the provision of online platforms focusing on digital skills would appear particularly important.
City-REDI / WM REDI have developed a resource page with all of our analysis of the impact of Coronavirus (COVID-19) on the West Midlands and the UK. It includes previous editions of the West Midlands Weekly Economic Monitor, blogs and research on the economic and social impact of COVID-19. You can view that here.
This blog was written by Dr Abigail Taylor, Research Fellow, City-REDI / WM REDI, University of Birmingham.
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Disclaimer:
The views expressed in this analysis post are those of the authors and not necessarily those of City-REDI / WM REDI or the University of Birmingham